Oil prices experienced an increase exceeding 1% during early trading on Wednesday, driven by renewed tensions in the Middle East that unsettled markets. Iran has initiated missile launches targeting Kuwait and Bahrain, amidst a backdrop where attempts to rejuvenate diplomatic relations between Tehran and Washington seem to be yielding minimal progress. According to the U.S. military, Iran launched ballistic missiles aimed at Kuwait and Bahrain; however, none of the intended targets sustained any damage. In reaction to what it characterised as attempted assaults, U.S. forces executed strikes on Iran’s Qeshm Island. Brent crude futures increased by $1.05, reflecting a rise of 1.09%, reaching $97.05 per barrel. Meanwhile, U.S. West Texas Intermediate crude saw an uptick of $1.01, or 1.08%, settling at $94.77. Investors maintained their focus on the evolving situation regarding the conflict, as Iran assessed a proposed agreement from the United States designed to bring an end to hostilities. Iranian media indicated on Tuesday that Tehran had not engaged in communication with Washington for several days.

U.S. President Donald Trump, however, asserted that negotiations were ongoing. Signals from both sides of the negotiations appeared to be inconsistent. While Trump stated on Monday that discussions with Iran were ongoing, Iran’s Tasnim news agency reported that indirect talks with Washington had been suspended. In an interview, Trump expressed that he would not be troubled if the negotiations were to conclude. Shortly afterward, however, he indicated on social media that discussions were still ongoing. He also informed that he anticipated an agreement to extend the ceasefire and reopen the Strait of Hormuz within the forthcoming week, as per a post by the broadcaster on X. More than three months after the United States and Israel initiated strikes on Iran, the situation remains stagnant, characterised by a tenuous ceasefire that endures.

Markets are attentively observing the potential outcomes of negotiations between Washington and Tehran, assessing whether these discussions will yield significant advancements or face additional challenges. Traders are especially attentive to remarks concerning the Strait of Hormuz and to the real-time movements of tankers through this strategically vital waterway. In a notable development within the region, Lebanon declared a partial ceasefire between Hezbollah and Israel on Monday. The development is perceived as a modest advancement in alleviating tensions within a wider conflict that has involved Iran. Analysts indicated that even with a formal ceasefire in place, it may take several months for shipping through the Strait of Hormuz to normalise. Any damage to energy infrastructure could prolong the recovery period even more.

Last month, Saudi Aramco Chief Executive Officer Amin Nasser cautioned that disruptions in the Strait of Hormuz might postpone stability in global oil markets until 2027. He stated that extended disruptions might affect almost 100 million barrels of oil supply on a weekly basis. Saudi Aramco holds the position of the largest oil producer globally. Morgan Stanley stated that the oil market is presently involved in “a race against time,” warning that the elements which have thus far restrained a more significant increase in crude prices may start to diminish if the Strait of Hormuz remains closed through June. The broking observed that robust U.S. crude exports alongside diminished Chinese demand have contributed to mitigating a portion of the supply shock. However, it cautioned that an extended closure of the waterway could further constrict global supplies if disruptions persist beyond the capacity of the U.S. and China to compensate.